Main navigation

appraisals too low

There is lots of talk about appraisers being “deal killers” because appraisals are coming in too low. I’m not saying that’s fiction, and I’m not about to defend bad appraisals either, but sometimes it’s about the deal being unrealistic rather than appraisers killing it.

Choosing the Right Comps: I appraised a property in Citrus Heights recently just south of the Placer County line and the City of Roseville. The subject neighborhood is outlined in yellow below. During the course of the appraisal I extended the opportunity for the Listing Agent to share any competitive sales or data that was used to develop the list price. The agent then provided me with “comps” across the county line in Roseville (in the “blue” territory below). These sales of course supported the contract price for the subject property, but were they really adequate comparable sales? Would buyers consider properties in Citrus Heights and Roseville at the same time? Is there any price difference between these two neighborhoods? What does the data say? (see graph below)

There are surely times when sales in a different city or county might be competitive and therefore worth considering in an appraisal, but not in this case in my opinion. Why? Because the Roseville neighborhood plain and simply has higher property values – not to mention it has a different school district. If I used the “blue” comps above, the subject property would have an inflated value. Bottom line.

What are the market takeaways from this scenario?

Bad Comps: It’s best to use comps (comparable sales) from the immediate neighborhood, but that’s not always possible – especially if the subject property is unique. Ultimately, regardless of where comps come from, the appraiser needs to have a good reason for using them. If comps are from a superior area, they should be discounted to be more consistent with the subject neighborhood. The same holds true for an inferior neighborhood in that the appraiser should add value to those sales to bring them up to the same level of the subject neighborhood. Ultimately the wrong comps can lead to a value that is either too high or too low.

Realtors: If you supply comps to an appraiser, it helps if they are truly competitive sales. Would a buyer for the subject property consider purchasing the comps as a replacement if the subject property was not available? As an FYI, when the agent for the property above told me these two neighborhoods had the same school district (they don’t) and there was no value difference either (there is), I had a hard time believing any other information the agent shared with me about the number of offers or the price level of offers too. It was unfortunate to have the feeling that I couldn’t trust the agent, whether the agent was simply mistaken or a more purposeful communicator.

Appraisers: It’s important to pay close attention to nearby neighborhoods to ensure there is no price difference.

Proper Pricing: The market has been “on fire” in Sacramento as prices have shown an increase lately in many areas. However, it’s still important to price properties according to the market. After all, there are many reasons why buyers will overpay right now. If you are a seller, look at the most recent sales (and listings), and be competitive with realistic expectations. I’ve noticed many sellers are actually not choosing the highest offers because they know it just won’t appraise that high. However, sometimes offers at extremely high levels are chosen, and then frustration ensues when the appraisal comes in “low”. Yet the real issue in these cases is that the buyer offered too much and the seller expected too much. It’s really not an appraisal problem (assuming the value was solid of course).

The Bottom Line: I am not wearing market blinders that ignore there is a real issue with the quality of appraisals. That’s why I’ve written so much about challenging low appraisals. Yet at the same time there are properties being priced very aggressively right now, which is also important to sift through. In cases like this, when the appraiser recognizes value at a level lower than the contract price, the appraiser is simply doing what should be done, right?

Any thoughts or stories to share? If you are an agent, how have the appraisals been for your deals lately? What do you wish appraisers would do differently? (please comment below)

NOTE: This is in no way intended to bash Realtors. That’s not how I operate. In fact, this next year will be my fourth year sitting on a committee with the Sacramento Association of Realtors. If you are looking for a trustworthy real estate agent, my digital Rolodex is full of referrals for you.

Disclaimer

First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

Please see my Sharing Policy on the navigation bar if you are interested in sharing portions of any content on this blog.

The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

There are no affiliate links on this blog, but there are three advertisements. Please do your homework before doing business with any advertisers as advertisements are not affiliated with this blog in any way. Two ads are located on the sidebar and one is at the bottom of each post. The ads earn a minor amount of revenue and are a simple reward for providing consistent original content to readers. If you think the ads interfere with your blog experience or the integrity of the blog somehow, let me know. I'm always open to feedback. Thank you again for being here.